NYX Nyse Euronext

BATS Global Markets' proposed takeover of European share-trading platform Chi-X Europe raised few red flags among rival exchanges and major trading houses in the region, according to testimony released by U.K. competition authorities.

Barriers to entry for new stock markets remain low due to the wide availability of technology and trading firms' inclination to support challengers, sector executives told the U.K. Competition Commission in a series of July hearings.

The testimonies, released in the past week on the body's website, came after the U.K. in June opened an in-depth examination of the acquisition agreed in February, casting uncertainty on a deal that market participants assumed would draw little scrutiny.

In response BATS and Chi-X Europe last month agreed to extend the terms of their deal.

Concerns raised in May by U.S. antitrust officials sunk a joint proposal by IntercontinentalExchange Inc. (ICE) and Nasdaq OMX Group Inc. (NDAQ) to buy NYSE Euronext (NYX). The Big Board parent's agreed merger with Germany's Deutsche Boerse AG (DB1.XE) hinges on securing antitrust approval from European Union authorities, who this month extended their examination of the deal and are closely scrutinizing the groups' combined strength in derivatives.

BATS' planned purchase is valued at up to $360 million and would bring Chi-X Europe, the largest among a new generation of European share-trading platforms, alongside the Kansas City-based firm's smaller regional effort. Together the two markets would hold about 24% of daily trade in European stocks, ranking just behind London Stock Exchange Group PLC (LSE.LN).

LSE executives told U.K. competition authorities in July that rules liberalizing electronic trade in Europe have opened the field to new challengers and that it remained "relatively easy" to open a new venue within six to nine months.

"Should the merger cause any competitive concerns, then a new [multilateral trading facility] could rapidly be established to restore competition," LSE officials told the U.K. body at a late July hearing.

LSE in early 2010 completed a deal to buy Turquoise, another trading platform, with which it aims to match Chi-X Europe's 19% market share.

Chicago-based Getco LLC, a major electronic market maker and shareholder in both BATS and Chi-X Europe, said the combination would make better use of technology and present a tougher competitor to established exchanges, particularly the LSE. Both Getco and Swiss bank UBS AG (UBS) told authorities they remained willing to invest in new trading platforms if further consolidation in the sector reduced competition and trading costs crept higher.

IG Group, which runs derivatives markets in the U.K. and sometimes uses stock markets to hedge transactions, warned that a duopoly pitting the LSE against a combined BATS-Chi-X Europe "might be acceptable," but continued consolidation could leave customers with less choice in where to do business.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

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